The Danes, for example, embarked on a relentless qwest to reduce oil consumption decades ago. To be sure, oil discoveries helped, but they could not have come close to reducing their reliance on imported oil without such an effort, an effort which was not dependent upon the day by day or even year by year oil prices.

In the U.S., instead, any progress we are likely to be make will be subject to the daily and weekly gyrations of the oil market. Even if the overall trend is up, every new blip downward will be greeted with the idea that we can drill or talk our way out of the problem, no long range concerted effort and investment required.

What could cause this transformational shift, I don't know. One can always hope that a change in administrations and party in power will make the difference. But that seems to be all that is available at the moment -- hope. But hope is not a policy and in the mean time, Saudi Arabia, for one example, will jerk us around with never ending promises of plenty of oil around the corner.

We need to send a message that what happens in OPEC is irrelevant to our course of action. Integral to that course of action, is a guaranteed floor under oil prices. Not that this is one of my concerns, but this would also be helpful to the domestic oil industry with respect to their exploration and development scenarios.

A chart showing what the price was on this date one year ago might be a way to cool off the unnecessary exhubarance that the pundits have lately shown. How far back do we have to go to see when there was a year on year price drop?
Your mention that if Bush decided on face to face talks with Iran might bring prices down a bit is a fascinating conjecture. Obama has said he is willing to do that which means we may see if the war premium really exists come next January.

I'm looking at the chart in the article ad I don't understand it. I can see what the black line represents (the historical price per barrel). But I have no idea what the blue diamonds are supposed to represent. It says "+30% per year" but what does that mean? Thirty percent of ............ what?

And I'm also hazey on the yellow number markers and yellow arrows.

Most of the charts I've ever seen on TOD have always been very self-explanatory. This one has me baffled.

Jerome,

many thanks for this olympian perspective on our ongoing energy woes.
The graph, for a start, is a sweetly informative item, since, far from showing a peak price being reached,
thus far it appears to show generally steeper rises after each significant reversal.

Thus the rate of oil price increase/year may itself be accelerating somewhat ?

With regard to the policy priority that should be given to demand reduction,
I would agree that this should be paramount,
specifically in those industrial societies where power & energy use is patently profligate.

However, the fact is (as seen since the sixties) that achieving demand reduction
is disliked by industrial planners & financiers even more than initiating sustainable energy supply.
In addition to which, there are very large populations now aspiring just to get an energy supply,
meaning that the worldwide R,D&D of both village & city-scale sus. energy supply
(without which fossil fuel competition will be all the more desperate)
is the entirely necessary complement to the sufficient demand-reduction that you urge.

You write:
"We have to reduce our demand. Let's do it in an organized way rather than a panicked, haphazard, inconsistent way. And that's where government can help, by providing longer term pespective, informing citizens, pushing infrastructure in the relevant direction, and bringing up standards that apply to all equally and guide individual behavior in the right (Energy Smart) direction.

Price mechanisms work, but they are brutal, hurt the poor the most, and cause unnecessary disruption to economic activity, and pain to many. And they are fickle, as the current volatility (which, as I explained above, is likely to remain) causes rapidly changing signals which prevent decisions from being taken."

All of which I'd applaud as a very succinct layout of the case for proactive national & regional governance,
and against a reliance merely on the application of inequitable, inefficient and unpopular price mechanisms.
Yet I think there is further to go on this,
in that success at the global diplomatic level of governments' agreement on burden sharing -
is plainly a prior condition for successful governance within national borders.
Otherwise, how long would national industries wait for their foreign competitors to invest in the vital changes ?

A further question arises over the potential allocation of national energy usage rights,
since the global climate policy framework of "Contraction & Convergence" [aka: C&C]
which offers a close proxy for energy usage rights in the form of national greenhouse-gas emissions entitlement,
is now under increasingly cogent discussion in the run up to the UN's Copenhagen Conference next year,
having won EU, African & Indian endorsement, among others.

In case this framework may be new to you, here is a banner-scale description, being :
CONTRACTION
of global emissions to respect the Earth's capacity,
& CONVERGENCE
of all nations' emission rights to per capita parity.

(A properly detailed account of the principle & its dynamics, plus analysis, endorsements, etc,
can be found at www.gci.org.uk)

Your critique of price mechanisms is, I'd respectfully suggest, addressing badly flawed models,
than which we can and must do much better.
I say "must", to reflect the urgency of our position -
since an equitable and efficient price mechanism could optimize the viable rate of change
both for oil [fossil-energy] addicts and for impoverished masses in need of basic energy supplies
surely it behoves us to try to advance the adoption of such a mechanism ASAP ?

Sadly there is as yet little open discussion on the web of this need.

The C&C framework was developed around 1990 to facilitate the necessary shift
from emissions (energy-usage) rights reflecting sheer national wealth
with those rights Converging (over a period of years to be negotiated)
to reflect national population size, i.e. per capita parity (at an agreed date).

An annual Contraction in the global emissions budget has also to be agreed by the national signatories to the UNFCCC,
in light of the climate science provided by the IPCC and its researchers,
to achieve an atmospheric CO2 (equivalent) concentration that will avoid further decay in climatic stability.

In light of negotiations to date, those national entitlements would, undoubtedly, be tradeable at least in part,
meaning that industrialized nations would increasingly need to buy entitlement from poorer more populous nations,
with the payments being verifiably ring-fenced to investment in UN accredited mitigation & adaption projects.

Notably, it would seem not beyond the wit of humanity to codify in the forthcoming treaty
poor nation's right to receive sufficient energy supply (at a preferential rate) to meet basic subsistence needs
as part payment-in-kind for emission-entitlements sold.

In this manner the international contagion of social & economic destabilization may at least be limited,
if not actually avoided altogether.
________________________________________________________________________

The above is just a first attempt at utilizing the global C&C framework
in the forthcoming "Treaty of the Atmospheric Commons"
to ameliorate effectively the excess energy demand and supply scarcity -
so I'd appreciate your thoughts on this option.

Regards

Backstop

We have to also remember that the presence of speculator open interest at the NYMEX has been in decline for one year. I actually now believe that the volatility in oil this year, the rise to 147, and now the fall, was made possible in part by the reduction of speculators. Speculators are information aggregators. While they get the story wrong at times, the market does not have other participants whose exclusive role it is to get information. A market that is reduced to commercial hedgers and commercial users may sound all well and good in theory to those who fear speculators. But I don't think it's very good at all. I think the primary role of speculators in front month and near month oil is as follows: to make sure the price on the day of expiration is not wildly out of synch with real world supply and demand, and to try and smooth the pathway so that producers and users settle at a fair price. I also think it's fine to have some fear and greed along the way to expiration, as well. If speculators are doing their job, the price will glide more smoothly towards expiration, starting more than several days out. I am speaking on a relative basis, only. Those wild moves up and down as we went to 147 look awfully choppy to me. Same too, since we started falling.

The media, both print and TV, remains chock-full of those who are absolutely sure this is all speculation-driven. When I do sentiment analysis on investment boards, among readers and writers, in comments section of various newspapers--the overwhelming majority are still very locked into mytholoigies about the oil companies, and speculators. I think writers/economists like Paul Krugman and James Hamilton have done a great job showing that evidence of a speculator-driven market is sorely lacking. In fact, I think those who assert that oil is all speculation are simply telling us how they feel.

If we consider the three strongest points of data, however, I think the action over the last year makes alot of sense. 1. Zero growth in global crude oil production for three years and five months. (It's still astonishes every time I say it.) 2. The very notable decline in Open Interest at the NYMEX, showing the market has literally been transformed on a comparative basis to a market of commercial hedgers and users. 3. The decline in OECD inventories of oil on both an absolute and more importantly on a days supply basis, over the past year.

If I had not seen a single newspaper or internet screen for a year, and someone told me the above, I would know pretty easily that the market was likely quite volatile. (My argument is not without flaws however because the oil market has long been quite volatile this decade--especially starting in 2004, when we re-priced above 40.00)

If my analysis is correct about the structure of the futures market--that it's reduced now to a bunch of commercial hedgers and commercial users butting heads, along with the marketing departments of the integrateds, none of whom are as good at specializing in information--then we could see oil get even crazier. This thing could crash to 95.00 over the next 6 weeks, and then soar back to 150.00 in November as real world pressures of Q4 suddenly sweep, in to the market. In the near-term, we could also see this type of oil market fail to correctly price in impending geo-political events. In a perverse way, I want people to learn a hard lesson, on what can happen with you remove the smoothing function of speculators in front and near month. Again, if I am correct, we are moving farther away from a well functioning market that rations by price. That means in a sudden type of event, shortages would be more of a possibility.

I agree completely with the author of this post that this is a Kill Demand market. The price action has a very different signature to me, than in the last 5 years. My point is that we also have a new price discovery problem laid on top of this Kill Demand market, as speculators in Front Month and Near Month have been chased from this market--likely on the threat of congressional action.

Gregor

Steven Koonin, the chief scientist for BP and former provost of CalTech, describes the energy challenges facing the world and suggests the development of advanced biofuels and a new generation of nuclear power as alternatives to fossil fuels. Series: Helen Edison Lecture Series [8/2008]

http://www.youtube.com/watch?v=JAPP7o6uG8Y

Giddaye Jerome,

I like your graph. To the start of next year, it'll be interesting to see if the price trends down by a largish percentage (say 30% to under $100), or a lesser one. And then what? Bubble along for a few years; or pierce back through your blue diamonds?

Whatever the case, I still get the impression the powers-that-be are many steps distant from the PO table - they barely sit at the GW one! (That's another interesting graph, a decade of near flat global temperature rises. A new trend?).

I still believe, as long as OTHERS believe more massive finds are still out there (Iraq? The Arctic?) - or coal/shale/whatever-to-liquids is doable - it'll sadly be BAU for some years yet.

Regards, Matt B

Now we can observe the impacts of demand destruction.

Demand is down, but oil is now being extracted at the same rate as if oil was $140 per barrel.

Because the demand for oil is so high, it will always be higher than production; thus the depletion rate will continue until all recoverable oil is extracted.

We cannot conserve our way out of this catastrophe.

This actually proves the marginal-cost theory. Supply and demand haven't really changed much in the last few years, and neither has world politics - yet look at the rise in the price of oil! So, how to explain the drastic rise in price? The economic fundamentals don't really explain it. The only factor that does explain it - is if the marginal cost of oil just went up big-time in the last 10 years. And, it sure looks like that is the case. 10 years ago, the marginal cost was a Middle Eastern barrel, so oil prices were extremely low. Then, as we hit peak, there was no more cheap oil, so the marginal price moved to an off-shore barrel, and then a deep-sea barrel. Now, the marginal cost is even more expensive - an oil sands barrel (or worse yet, a biofuel barrel). After that, there's nowhere for price to move to, except to the ultimate user-utility value of that barrel ($$$$$). This all implies that we've gone over the peak already (perhaps 4 or 5 years ago even), and the only thing keeping us from the crash are the advanced recovery methods and non-conventional production. Uh oh...

'which often subsidize gas'

This formulation is getting increasingly disturbing, at least in terms of a country like Russia, and to a lesser extent, Saudi Arabia.

The Russians produce and refine their own oil - that they sell their own product at their own price within their own borders is not 'subsidizing' the price of oil.

Instead, it merely reflects the fact that they have it, and we don't - and that the Russians are willing to use their own oil at a price which the mythical market considers too low - because that mythical market wants to burn the oil.

Of course, we can talk about inefficiency, misallocation, and general wastefulness as not being good in the long term, but this is not the same as saying the Russians are not playing according to the rules the market expects. It is just that in this case, the market is in the loser's seat.

A graph is supposed to be a model of reality which of course the historic part of the graph is exactly that.

The graph is one variable along a constant line ... i.e. the price of crude vs. date line. Smoothing into an exponential or using a 100 or 200-day average or a WAG to predict the future is quite valid.

However, we are not in such a simple real world. The de-valuation of homes, subsequent layoffs, interest rates, hard credit application, massive retooling, war(s), etc. etc. all happened in the last month are going into incremental demand destruction not just the price of oil. Should any one of the above reasons fail catastrophically demand destruction can accelerate greatly and the expoential curve will be invalid and a moving average will be way behind reality while the WAG may be right on kinda like pin the tail on the curve.

If we plotted the price supply demand and date curve through 1990 it would be perfectly reasonable (graph wise) to continue the graph ad infinitum though reason dictated a important finite resource must at some time become critical.

If the world would be shrunk to the size of an orange, it would be smoother than an orange but as I look out my window I see mountains several thousand feet higher than my valley. IMHO Dr. Ali Morteza Samsam Bakhtiari was right, that the time of graphing is over. It is a time of action. What is your action?

I just burned a huge amount of oil getting to Scotland from Australia and back, flying with Emirates Airlines. En-route I noticed news stories about Emirates Airlines buying up big on Airbus A380 super-jumbos. You would have thought that they would have a good idea of oil supply constraints. Perhaps OPEC really do have plenty of the stuff after all. On the other hand maybe they know all the other airlines are doomed and that they can carry on regardless by subsidizing their national carrier with cheap fuel.

I dropped into the Dubai on the way back. Along with the other Emirates states they're going nuts with construction of futuristic sky-scraping cities, designed to be luxury tourist destinations, plied by freeways carrying the most ridiculously over-sized cars I have ever seen. I've never seen such an unsustainably designed place! Their water is all desalinised (fueled by oil) and every indoor space is airconditioned without adequate insulation or due care for heat leakage. The population is increasing through immigration by 5 to 10% per year. Are they deluded, or are they confident that they have plenty of black muck on which to keep themselves afloat into the foreseeable future?

At the other extreme, I was impressed to find that in Scotland people were getting around in small cars that get 50 miles to the gallon. Hired one myself. Mind you while I was there the major Scottish energy retailer announced a 30% hike in natural gas prices and a 7% increase in electricity prices. Their superior vehicle fuel economies won't save them from freezing in winter.

Funny old world isn't it. A couple of months ago there where people that predicted that oil would neve rise beyond $100 per barrel.

Now here we are after $147 oil and $115/barrel seems as cheap as chips.

The oil price price pattern of sawtooth up, then down a good bit (but never below the last dip), then back up to well above the last price peak seems like a darn near perfect way to facilitate a continual upwards price trend without pushing demand off the cliff (consumer sticker shock)or inciting some kind of threatening political/military response, even preventing a concerted long-term effort to pursue alternative energy. As we can see now, and have seen for decades, the American consumer has nothing more than a very short-term memory about prices. We are the perfect suckers for the game. Cornucopians and Joe-Lunch-bucket know-nothings, rejoice for now....you'll probably want to buy that second Hummer or Suburban or Escalade or Tahoe you were craving.

And another thing, the Emperor of the World (with no clothes) gave Bob Costas an interview at the Olympics Sunday during which he said (after smirking at Bob's question)that he didn't think America had any problems...

http://thinkprogress.org/2008/08/10/bush-i-dont-see-america-having-probl...

Does Georgia have any oil or oil pipelines that the West would be interested in? Good thing our Army and Marines are busy in our 51st and 52nd states, or else GWB would have them parachuting into South Ossetia right now and start WW III. As is is, he is content to lecture the Chinese about religious freedom, and how, when it takes hold, it is unstoppable. Expect many more Party crackdowns on underground churches after the Olympics are over. Way to go, GW!

I had commented earlier that oil seems to have become the chastity belt on the world economy. Get too excited and you know what happens. Oil prices will shoot up and put the brakes on growth again.

Crude averaged $72 last year. At a 30% growth rate, we should expect it to average $95 or so this year. That would have been a shocker in itself had we not seen $140 this year. Now $95 seems cheap.

It might also be instructive to break up that graph into two trend lines. From Jan 2000 - Jan 2005 (when oil prices doubled from $20 to $40 or about a 16% growth) and then from Jan 2005 to Jan 2008. I use Jan 2005 as data suggests that crude production has remained pretty much flat from then on. Oil prices have increased 2.5 times in 3 years or a 36% growth YOY.

From the graph, oil price volatility is increasing at least in USD terms - not sure if the same is true in %age terms. This means that uncertainty around future prices is increasing.

This will have some serious implications for investments. Capital investment decisions happen when companies feel they can predict the future for 5-10 years. Sourcing and manufacturing decisions depend heavily on transport costs. If one cannot predict reasonably well where fuel prices are headed, it makes it very difficult to make good sourcing decisions. Two of the BRIC, I&C, economies depend very heavily on imported crude. Their growth stories are threatened by rising crude prices. All this spells a difficult environment for firms trying to make investments.

Srivathsa

In stock and commodity charting it is common to a logarithmic scale for the price and linear for time( semi-log paper). The advantage is that this makes equal percentage moves the same size on the chart . Semi log plotting will often remove the undesirable appearance of an exponential increase that appears if a linear price scale is used.

See this link for a discussion and examples under the Price Scaling section at the bottom of the page :

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:wh...

Quote:

"There are two methods for displaying the price scale along the y-axis: arithmetic and logarithmic. An arithmetic scale displays 10 points (or dollars) as the same vertical distance no matter what the price level. Each unit of measure is the same throughout the entire scale. If a stock advances from 10 to 80 over a 6-month period, the move from 10 to 20 will appear to be the same distance as the move from 70 to 80. Even though this move is the same in absolute terms, it is not the same in percentage terms.

A logarithmic scale measures price movements in percentage terms. An advance from 10 to 20 would represent an increase of 100%. An advance from 20 to 40 would also be 100%, as would an advance from 40 to 80. All three of these advances would appear as the same vertical distance on a logarithmic scale. Most charting programs refer to the logarithmic scale as a semi-log scale, because the time axis is still displayed arithmetically."

"

This time next year somewhere in the neighborhood of $200 - $300 a barrel, if there is any semblance of an economy at that time.

SHTF soon!

Great article and even better graph Jerome. The most telling part of the graph in my opinion, is the 14% percent change downward recently as compared to five other higher percentage changes in earlier years. The News was so exhaulted by the dollar descent from 145 to 115, that they never bothered to compare it as a percentage change versus earlier points in time. The hyperbole was fervent, wrought with phrases that included words like, 'historic price reduction', and 'never have we seen such a drop in the price of oil before!' It's called news, but it's obviously not researched very well, and they pretty much say whatever they want.

Secondly, the upward +30% increase in price per year since 2000 has a consistent upward slope. In the context of percentage changes, the upward slope has not been breached by the recent drop in price, and the bubble has not popped as so many news people have claimed.

Scarcity of a finite resource, sold as a base energy product for consumption (primarily for transportation), has reached the maximum level producible (based on extraction, exportation and refining capacity), and the world must now reconcile the need to continually expand the economy while competing for a limited energy flow. Since that is not possible, recession is inevitable for those countries with a net importation of oil. Since the US has the greatest quantity of importation, our economy will slow the most.

The alternative is to quickly as possible initiate a transition to renewable energy. Put solar panels on every new home, and promote their installation on existing homes with rebates, and tax credits. Install wind turbines per Pickens plan and convert some percentage of the transport fleet to NG. Make the transition to hybrids and electric, giving tax credits for dumping the ol' heap. Drastically reduce our dependence on oil.

Great article! Your graph inspired me to hindcast and forecast the gas prices in Switzerland, based on two simple assumptions, namely a 30% annual oil price increase (as you suggest in your article) and a devaluation of the US dollar compared to Swiss Francs by 5% per year.

Here is the result:

The blue line shows the calculated prices. The red symbols represent nation-wide averaged gas prices (reported by Shell).

As you can see, the price for crude oil has had a small share in the gas prices up to now. Taxes etc. (black dotted line) are still dominating. This might explain why the rising of oil prices had no noticeable effect on traffic in Switzerland and elsewhere in Europe.

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One of my comments on a Drumbeat thread:

Some perspective on (WTI) oil prices & oil exports

First, I think that we get a better idea of what is going on in oil markets, especially regarding fundamental supply & demand factors, by looking at average monthly prices. From May, 2007 to June, 2008 oil prices increased at an average rate of about 6% per month, from $63 to $134. It was not straight up. There were two down months, August and December. July, 2008 was basically flat, down 50¢ from June, and we are obviously down in August--similar to, but sharper than, the August, 2007 decline.

Second, the media have generally asserted that this price increase made no sense. In fact, we have seen an accelerating annual decline in total world net oil exports--from a 1.1%/year decline in 2006 to a 2.2%/year decline in 2007 (EIA). Simply put, we have seen importers bidding for declining net oil exports.

Third, we are going to see declining demand as higher prices allocate the declining net oil exports to the high bidders. So, prices are a manifestation of a "horserace" between declining net oil exports and declining demand--with a wild card being the deflationary effects of the credit contraction. What I don't expect to see is a long term positive supply response. I expect to see a continued decline in net oil exports, that with time, will almost certainly show an accelerating decline rate.

People are grasping, and will continue to grasp, at anything that suggests that we might be able to have an infinite rate of increase in our consumption of a finite fossil fuel resource base.

Jerome,

Your point about making a transition off of oil at a lower cost when government intervention is used is very important. It is also important to note that we have little time before the oil that could be sold cheaply in not the largest part of the market. So, if we want to intervene, we need to do it soon. Thus, I think that intervening is most important to avoid investment in oil that will be expensive to produce since the benefit you consider of transitioning a low cost will not be possible once the new junk oil has a larger market share. http://mdsolar.blogspot.com/2008/06/oil-is-too-expensive.html

Chris

Jerome,

One small remark:

Price mechanisms work, but they are brutal, hurt the poor the most, and cause unnecessary disruption to economic activity, and pain to many.

True and I would wish we could go back to a lower oil price so everybody has a little bit time to adapt.

However, this is not how people think. If prices fall, people will not change their behavior, but go back to their old ways. I'm afraid we need high prices for much longer to keep the pressure on to force change.

And politicians won't help out either. Their first priority is to get elected, their second priority is to get reelected.

I think that looking at the government for help is nothing else but wishful thinking. We should concentrate on what we as individuals, or as a group can do, despite the fact that governments are counterproductive. And maybe even stronger: Any involvement of the government should be regarded as counter productive.

This is an excellent post, thank you for it. Because production is now geologically limited and demand is, to a large extent, decoupled from the US economy I think that your estimates are highly accurate. The past is a useful guide and your graphic was bang on. Two hundred dollar a barrel oil, here we come.

Jerome,

Your graph appears off. Oil got up to $147 before it began the slide.

Kurt Cobb, in a recent post, points out that queuing theory predicts wild short term price fluctuations, when demand approaches system capacity. He also points out the relationship to leveraged speculation:

Doug Noland, an analyst for David W. Tice & Associates who posts his commentary on the firm's Prudent Bear site, provides an analysis that parallels queueing theory, but also adds more detail. Noland believes that the oil and commodities price break is not really the commodities bubble bursting, but rather the burst of what he calls a bubble in the "leveraged speculating community." He is referring to large speculators in the form of banks, hedge funds and even well-financed individual investors who borrow huge sums of money for the purposes of speculation. Some borrow 80 percent or more of their funds. That means a move of 20 percent or even less against them can wipe out their capital.

Many of these leveraged players have been heavily invested in the commodities market. So, it is no wonder they headed for the exits en masse when prices started to decline. Of course, their rush to the exits only exacerbated the decline and then caused other frightened investors to follow suit. The same is true in reverse for the financial stocks which many of the leveraged players had been short. The spectacular rebound of the battered financial sector is due in large part to the unwinding of short positions held by these same players. They were forced to buy back the financial shares they had borrowed when a small bounce in financials threatened them with total annihilation. The bounce in prices began when the U. S. government and the Federal Reserve announced a rescue of America's two largest mortgage lenders, Fannie Mae and Freddie Mac. The sudden move upward in financial shares lured other investors into those shares which led to further rises. All of this came in the face of continuing horrific news for the financial sector, news which is now being dismissed as backward looking.

Noland expects a reversal of recent trends in the not-to-distant future. But if current trends go much further, the coming reversal, he believes, could produce a major market crisis.

Jerome - Chris, excellent chart! A few of my random thoughts:

• The period below trend (06-07) is perhaps compensated by the period above trend in 08. I'm guessing we see a bottom at around $112.

• I think unmetered inflation is masking recession in the UK that likely started 2 to 3 years ago. Perhaps the same in the US? So recession and demand destruction are well underway and its continuation will unlikely alter the up trend.

• New demand in export lands and Asia seems more than capable of compensating for demand destruction elsewhere.

• If prices threaten to go too low - sub $110 - we'll see Saudi and other OPEC countries cutting production - and I just don't see that scenario unfolding.

• What happens to price when max production capacity starts to fall? I'm still waiting to see falling production (production not demand constrained) and exponentially rising prices. You get the feeling we are getting close

• The next up trend could be very very brutal

Can someone please comment on Steven Koonin's (youtube) video which seems to fly in the face of everything TheOilDrum stands for? How is there such a huge disconnect between what Matt Simmons says (for example) and what Koonin outlines. It's not that he is obviously putting a spin on things. I watched all 58 minutes of this and, though he perhaps glossed over some of the problems, it was nevertheless an intelligent and closely argued refutation that we face an oil crises any time soon. Help ...

This chart is great. It is interesting to see how the troughs reduced in depth as oil continued to increase. Also this chart seems to suggest that oil will fall somewhere below the 30% line at $110 and then jump back up, that is if the trend continues.

Jerome, my "eyeballed" trend line starting in 2002 agrees perfectly with your trend. If I start in 1998, the future trend is quite a bit lower, and the 2008 spike a larger overshoot. I suspect that the real case is an increasing exponential, (with speculators being a significant contributor to the increase), with the correct value for mid 2008 a little below your trend line. $200/b looks like somewhere between mid 2010 and late 2011, given a smooth curve. An earlier spike is always possible.
Your % drops data is interesting, but would be more meaningful if we also had the preceding rises. the current spike is a much larger rise than the prior ones (by eyeball), and ceteris parabus would suggest a bigger drop. An overshoot below the trend line should be expected.
Given that recent prices have generated some demand destruction, and that there is considerable new capacity coming on, at least to mid 2010, the 30%/yr exponential may be in for a short rest. That's my best guess anyway.
Overall I agree with your logic, but I suspect that speculators are a factor also, that aggravates the underlying mechanisms. Big speculators like hedge funds are a very recent entry on the oil scene, so to the extent that they do not withdraw, (having been blodied, but maybe not enough), the future will not be like the past. Murray